#7 The Context 24.02.2022
Conflicts and Clashes in Crypto
Hope you’re well. This newsletter collates the main headlines of the week in DeFi/crypto/metaverse/web3/NFT land and offers some context. It’s aimed at anyone who wants to keep an eye on the space but isn’t following it too closely, or is on the hunt for story ideas and angles.
We’re not here to evangelise or criticise, but hopefully to add perspective, context and a bit of insight about the week’s moves within DeFi, as well as on its fringes. It’s put together by a team at YAP, and doesn’t contain any promotion of our clients.
Your feedback is welcome, and if there’s anything we can help more on, don’t hesitate to ping us at thecontext@yapglobal.com
(This edition is coming out a little earlier this week because of the escalation in the Ukrainian crisis)
[Tl;dr]
The crisis in Ukraine has not made Bitcoin a safe haven. Why?
The Canadian trucker protest has highlighted other questions about crypto: does it lie beyond the reach of courts and governments?
The ETHDenver crypto conference saw the movement warily brushing shoulders with a new, different generation of enthusiasts. It’s a sign of the fast-moving times.
[Ukraine]
The grim reality of Russia’s build-up and invasion of Ukraine has sent investors rushing to stockpile gold, not crypto. Why? Reasons cited include:
demand for gold is not just driven by global tensions, but also growing demand in China and among central banks;
El Salvador’s experiment with Bitcoin as legal tender has attracted expressions of concern from the IMF, reducing the likelihood other countries might follow suit;
technical analysis, where Bitcoin’s failure to hold above $37,400, according to one analyst, makes $27,200 its next test;
that Bitcoin is not quite ready for this yet because of its volatility, its relatively limited adoption, and its tendency, like all crypto, to be lumped together to more speculative assets like tech stocks;
talk of another crypto winter, especially that welcoming it, since it would cull all but the strongest projects – and scare off the short-term speculators.
There is another way of looking at it: crypto might prove to be a boon for the people of Ukraine as they adjust to this new reality. Crypto has already been a source of crowdfunding for Ukrainian NGOs, according to a report by Elliptic. And the country’s parliament this week voted to legalise digital assets.
[Freedom to Transact?]
Canada’s crackdown on the truckers has highlighted the potential and challenges of cryptocurrencies. Supporters turned to crypto when their appeals on traditional funding platforms were shut down.
On one hand, cryptocurrency transactions and wallets are decentralised so in theory operate outside any legal process or enforcement of law, demonstrating the limitations of a government’s ability to thwart transactions.
On the other there are limitations of those systems to circumvent such sanctions. Centralised exchanges – where crypto can be bought with or sold for ordinary currency, or fiat, are regulated, and so are vulnerable to court orders. In the Canadian case, there have been two:
one a private class action lawsuit by Ottawa residents freezing at least 146 wallets;
while the other, by police, requires all regulated exchanges to stop transactions on 34 crypto wallets. This will be a cat-and-mouse game as funds gathered by or on behalf of the protesters try to stay one step ahead of the law, and the exchanges try to work out what their legal obligations are – and what they could in any case do if they were required to. A couple of interesting reads: I was wrong, we need crypto and this Twitter thread on the ‘freedom to transact’.
[Culture Clash]
A lot of the terms in DeFi (including DeFi) are recent and often lack definition. This might be frustrating, or seen as a marketing gimmick, or it might be down to the fast-growing and changing landscape itself:
Here’s a great closer look at the fast shifting ground from Kevin Zhou at Galois Capital: “To the extent that the term “Metaverse” means VR, we already have it and it’s a growing industry. To the extent that the term “Metaverse” means more than just VR, then we must be precise on its definition.”
The term web3 is still attracting heat on the grounds that it’s based on naive assumptions, while the latter appears to be one now being applied in retrospect to worlds as old as Second Life (19 years old). While it’s viewed as much as a crypto thing as a social media thing, what it looks like and whether it works out may well be down to silicon companies and cloud providers, argues Olivier Blanchard, an economist at MIT.
At the same time at least two distinct generations of crypto fans were visible at ETHDenver, the largest crypto gathering, as massive growth in adoption forces Ethereum’s old guard to meet the newbies: “The event forced longtime Ethereans to confront the fact that their community has changed. It’s bigger, first of all, but it’s also made a cultural shift from the geeky to the artsy, from coding to raging,” according to The Defiant’s Brady Dale. Not everyone is happy: “Way too many people,“ My Ethereum Wallet CEO Kosala Hemachandra told Brady. “ETHDenver changed from being a hackathon to being more of a commercial thing.”
[Tidbits]
CBDCs in trouble: One of the first central bank digital currency pilots is struggling, according to Bloomberg: DCash, a digital version of the Eastern Caribbean dollar used by seven small nations, has been offline for more than a month and it could take several more days to fully restore service, bank officials said. And the IMF has warned that Nigeria’s eNaira CBDC may pose money laundering risks. This after earlier saying that the eNaira was safer than Bitcoin and other cryptocurrencies.
DAO hack: Laura Shin, a journalist and author, has identified what she says is the likely culprit behind the hack of The DAO back in 2016. Weeks after raising $139 million in ether The DAO lost 31% of it to a hacker. Her investigation appears to point to Toby Hoenisch, a 36-year-old programmer who was cofounder and CEO of TenX, which raised $80 million in a 2017 initial coin offering, or ICO. Hoenisch has denied the claim.
Mining: It looks like proof of work is not going away any time soon, so the race is on to find ways of mining that don’t trash the planet. Intel, which has been critical of Bitcoin’s impact on climate, has launched a chip, the Bonanza Mine, or BMZ1, that it says will solve this problem. The Bitcoin-mining application-specific integrated circuit, or ASIC is, Intel says, a thousand times more efficient than a GPU. And apparently there’s a BMZ2 on the way.
[Interesting Reads]
We all have a friend or two who has lost all the keys to their Bitcoin. Here’s a team trying to recover them for clients.
Spare a thought for those searching for romance and finding only an empty wallet: Crypto Scammers Target Dating Apps - The New York Times
The days of celebs promoting NFTs and the like may be over. Soulja Boy and Lil Yachty are the subjects of an alleged SafeMoon ‘Pump and Dump’ lawsuit. SafeMoon’s marketing efforts extended to YouTube ads, social media awareness, and even a billboard in Times Square, according to Complex.
[Journalists and Journalism]
The boundaries have long since blurred between crypto journalism and mainstream journalism. Much of the writing of the former is as clear and unimpeachable as the best of the big mainstream players, and that’s in part because many publications have set themselves high standards, and also because that’s where a lot of crypto journalists came from. A couple of recent moves:
Andrew Rummer, who spent nearly 10 years at Bloomberg, has been appointed Managing Editor, Europe, for The Block;
Nathaniel Popper, one of the earliest mainstream journalists to cover crypto, has left The New York Times, and fallen headlong into NFTs (great thread here on his insights, along with the inevitable critical comments.
If you’re a journalist wanting to learn more about crypto, or have recently started working the beat, you might consider joining the Association of Cryptocurrency Journalists and Researchers. (My thanks to those posting links to the group’s Telegram channel, often unearthing interesting stories that might otherwise get lost.)
Thanks for reading.
This newsletter is pulled together by a team led by Jeremy Wagstaff, formerly of the WSJ, BBC and Reuters and Samantha Yap, founder of YAP Global. Other members: Farhan Musa, Rebecca Campbell and Ruby Wu. Many thanks to Joey Woo for production. Any views expressed here are not necessarily those of the writers, YAP Global or its clients.